Corporate clients’ foreign debts plummet again

Corporate borrowing from overseas lenders to meet funding needs squeezes again with the stock of short-term foreign debts having dropped to US$11.04 billion as of last May, prompting economists to predict adverse impact on economic activity.
Official data showed, on a year-on-year basis, the outstanding balance of US dollar-denominated debts declined by $2.91 billion year on year as the amount was $13.95 billion in May 2023.
Private-sector players said entrepreneurs postponed their business-expansion plans because of persisting uncertainties both on domestic and global markets.
Economists and analysts pinpoint several factors, including ongoing energy crisis in the industrial hubs, depreciation of the local currency against the greenback and repayment risks amid forex dearth, behind the downtrend in short-term-credit intake by the businesses.
The downturn in capital inflow triggers fears of disruptions to industrial production and jobs creation in the private-sector-led economy.
According to the latest statistics of Bangladesh Bank (BB), the outstanding balance of short-term external credits taken by the private players stood at $13.95 billion in May 2023. Thereafter started a slide, having dropped to $13.36 billion in July, $12.43 billion in September, $11.97 billion in November 2023, $11.25 billion in January 2024, and $11.04 billion in March, according to the latest available data.
In April last, the stock of one-year-long foreign borrowings by the private entrepreneurs made a slight increase to $11.14 billion. But the following month (May) saw slides again with the figure having dropped to $11.04 billion.
In terms of creditor-country-wise short-term private external debts, the United Arab Emirates topped the list with $2.02 billion followed by Singapore $1.71 billion, Hong Kong $1.10 billion, China $0.94 billion, , India $0.72 billion, the United Kingdom $.71 billion, the United States of America $0.65 billion and Germany $0.62 billion.
However, to the central bank's officials it comes as a sort of blessing in disguise-the lesser the debt liabilities, the lesser would be the pressure on the country's dwindling foreign-exchange reserves.
Seeking anonymity, a BB official said, "It is a good sign for the country that its overseas liabilities keep declining that would lessen pressure on the forex reserves to some extent."
Asked whether the ongoing dollar dearth poses any problem as far as repayment of the debts is concerned, the central banker said things started improving as the earnings from remittances and export receivables are slowly increasing.
Talking to the FE, Executive President of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) Mohammad Hatem said the manufacturers have been struggling to operate their production units on a full scale because of gas and power outages. "Then, why people will invest under such situation? That's why the volume of overseas debt is continuously decreasing," the business leader said.
The chief financial officer (CFO) of a private commercial bank says global lenders might consider the risk of repayment before lending to private-sector players in the country where availability of the foreign currencies still remains a concern.
"This could be a reason behind the falling trend in private-sector short- term overseas borrowing," the banker adds.
When contacted, founding chairman of local think-tank Policy Exchange of Bangladesh Dr M. Masrur Reaz said the ongoing import restrictions and energy disruptions pushed down the demand for working capital and trade financing from both external and internal sources.
On the other hand, the economist said, a lack of confidence among some of the global lenders in view of Bangladesh's current macroeconomic situation might dampen the overseas credit flow.
"They (global lenders) are lending less, or not giving credits to Bangladeshi entrepreneurs," he observes about the business-financing dilemmas.

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